FCA censures Aviva plc for listing and transparency rules breach

The FCA has today publicly censured Aviva plc for making an announcement that had the potential to mislead the market.

The announcement on 8 March 2018 (the Announcement) concerned Aviva’s preliminary year-end results. The FCA’s investigation into breaches of the Listing Rules and Transparency Rules found that the Announcement was reasonably capable of giving the impression that Aviva intended to take action to cancel at par value certain preference shares (which had been described at the time of issue in the early 1990s as “irredeemable”).

At the time, the preference shares were trading above their par value and so the statement caused concern that holders would incur losses on cancellation. At the close of market on that day the market price for Aviva’s preference shares fell between 20% and 26% as holders took action to sell at the above par market price. Retail investors made up a significant proportion of the preference shareholders affected.

Aviva clarified the statement and provided a payment scheme for those shareholders affected. The FCA has found Aviva’s breach to be serious but not intentional.

Aviva made the Announcement when it had, in fact, formed no intention to cancel the preference shares in question. The impression given by the Announcement was not accurate. Aviva clarified its intentions in a further regulatory announcement on 23 March 2018 which expressly stated Aviva had decided to take no action to cancel the preference shares.

A week later, Aviva also established a payment scheme for preference shareholders who sold their shares in the period between the Announcement and 22 March 2018 (inclusive) at a share price that was lower than the price to which the preference shares returned following 23 March 2018. This scheme was intended to put those shareholders in the same financial position they would have been in, had they sold their preference shares during this period.

The FCA found that Aviva failed to consider properly its obligations under the rules to take reasonable care to ensure the announcement was not misleading. In particular, Aviva failed to consider adequately how the announcement might be interpreted by the market, especially the holders of the preference shares. Aviva knew that a significant proportion of the preference shareholders were retail investors, but it did not make clear that it had made no decision to cancel the preference shares, and it did not clarify that there were other options available to Aviva for retiring the preference shares, including the use of compensatory measures, that would enable holders of the preference shares to receive more than par value.

Accordingly, the FCA found that it should have been obvious that the Announcement had the potential to mislead preference shareholders into believing Aviva intended to cancel its preference shares at par.

The FCA considers Aviva’s breach was serious but not intentional. The FCA also recognises that Aviva acted to clarify the Announcement and provided a payment scheme for affected preference shareholders. Accordingly, it is appropriate to issue a public censure.

Mark Steward, Executive Director of Enforcement and Market Oversight, said:

“This was a significant oversight by Aviva that confused the market for preference shares. Firms must ensure that announcements to the market are clear and not misleading. But for Aviva’s prompt clarification and the payment scheme, this case could have led to a financial penalty.”